Business

Challenging times

Movements in the market show the fierce ambition of domestic and foreign retailers in acquiring market share.

by Le Huong

In the final days of 2015 a number of commercial centers and supermarkets opened their doors with the expectation of recording bumper sales and making a mark on Vietnam’s retail scene.

After five years of searching for the right investment opportunity in Vietnam, on December 28 Emart (owned by Shinsegae from South Korea) officially opened its first hypermarket, Emart Go Vap, in Ho Chi Minh City. With total investment of $60 million it includes a supermarket on an area of 6,000 sq m, which sells various items such as fresh produce, household goods, electrical equipment, and fashion items, among others, and an area with restaurants, an amusement park, and a children’s education area, etc. Emart will build its second retail center in Tan Phu district, Ho Chi Minh City, when its application for a construction license is issued.

On December 26, meanwhile, Saigon Co.op officially opened Co.opmart Nguyen Binh in the city’s Nha Be district. This is its 32nd Co.opmart in the city and its 80th nationwide.

The third Aeon Mall from Japan’s Aeon, which opened in Hanoi on November 11 on an area of 120,000 sq m, also created a buzz in the country’s retail market. The giant Japanese retailer said that it aims to have 20 commercial centers and supermarkets in Vietnam by 2020.

Conversely, other giant retailers are looking to withdraw from the market. France’s Casino Group plans to sell Big C, while the plans of Thailand’s BJC to sell it Metro chain are still in the finalizing stage.

This suggests that, for now, Vietnam’s retail market is not a “promised land” for all players. But the comings and goings at least mean 2016 will be a year of much interest.

Lack of creativity

According to the General Statistics Office, the retail sales and consumer services market in 2015 saw a lot of activity, especially, as noted above, in the last month of the year. Distribution networks were strengthened and expanded in number, as were the number of supermarkets and specialized stores around the country.

Many players explored new sources of goods and researched consumers’ tastes in order to meet demands both in quantity and quality. The management and implementation of policies for commercial centers were conducted in a timely and effective manner. Stable market prices for essential goods, along with rapid growth in production, contributed to boosting commercial activities in the country and stimulating consumption.

As a result, total revenue of retail goods and consumer services in December was estimated at VND294.7 trillion ($13.1 billion), a 3.3 per cent increase against November and 9 per cent year-on-year.

“Vietnam’s retail market in 2015, continued to be vibrant with various types of products made available, most notably the number of imported products,” said Mr. Vu Vinh Phu, President of the Hanoi Supermarket Association. “However, it was also difficult to manage quality, price and trade fraud, which are quite complex matters.” In his view, retail planning is often illogical. For example, there were three supermarkets built within one kilometer of each other in Hanoi’s Thai Thinh Street, of which only Lotte Mart is effective, Hapro has closed, and the domestic supermarket is only barely staying in business.

Having watched Vietnam’s retail market for many years, Mr. Vaughan Ryan, Managing Director of Nielsen Vietnam, said that 2015 was a reality check for Vietnam’s retail sector. “Fast-moving consumer goods (FMCG) has stalled or, some may say, stopped altogether,” he said. “The organic growth in double digits we have seen in the last decade has been replaced by somber levels of growth around the 2 to 4 per cent mark.”

In his view, this is a major challenge for retailers as well as manufacturers and forces them to change their approach. They can no longer push growth by increasing prices without thinking about their consumers. The beverage industry, in particular beer and soft drinks, has seen significant growth, with a large emphasis being on customer engagement at the point of purchase, Mr. Ryan added. It was a challenging year, he concluded, with a lack of creativity in the market.

External competitors

Mr. Phu said that the competition between domestic retailers and foreign retailers is fierce. “Although the number of locations where domestic retailers are present is huge, competitive solutions are yet to be adopted,” he said. “Meanwhile, the solutions of foreign retailers may not be many but they have strong strategies to acquire market share.” He sees this as cause for alarm among domestic retailers.

Mr. Pham Dinh Doan, Deputy Chairman of the Vietnam Retailers Association, is of a similar mind. He believes that Vietnam’s retail and distribution enterprises remain weak and bear many limitations. This was shown in three important points: a shortage of financial resources to grow into large-scale chains; a lack of ability and experience in managing and applying high technology in management; and an absence of brand and long-term connections, cooperation, and support from partners and customers. Foreign companies, meanwhile, have a range of ambitious plans in place.

“Obviously, with financial strength and experience foreign corporations possess numerous advantages compared to their domestic counterparts,” Mr. Doan said. “What should be done now is not discussing how to protect domestic enterprises but how to take advantage of integration in order to bring more advantages to Vietnam’s enterprises and its economy.”

“Merger and acquisitions (M&As) will continue to been seen in Vietnam’s retail market in 2016. Retailers are always looking to fast-track their presence in markets and Vietnam is no different. The challenge is that we don’t have two or three players with a large presence, so despite any M&A efforts, to grow your business in Vietnam you need to build from the bottom up.

On the other hand, online retail will definitely continue to grow, but off a very low base, and from what we have seen it will continue to be dominated by just a few categories, which will prevent the really large levels of growth we have seen in markets such as South Korea and China. The key categories in retail will continue to be travel, cosmetics, and clothing, but we will see emerging categories such as infant formula, baby food, and high-end technology.”

Mr. Vaughan Ryan, Managing Director of Nielsen Vietnam

“To help domestic retailers integrate successfully, in addition to their efforts the government also needs to implement solutions to support them.

First, the government needs to plan a strategy to develop the distribution and retail sector from 2015 to 2020 and subsequent years, with strong attention given to planning with the aim of ‘coexistence for everyone’s benefit’.

Second, the State should adopt policies that prioritize local enterprises in accessing land and credit. Enterprises themselves should be willing to accept joint venture and M&A opportunities. Joint ventures, however, should prioritize a method whereby they hold the majority of shares.

Third, for foreign enterprises, managers should think about the proportion of Vietnamese goods and direct supermarket chains to sell Vietnamese goods in their outlets. These enterprises need to contribute to supporting services, suppliers, and small partners around the country.

Fourth, the State should hold discussions with experts to assist retailers and distributors in Vietnam to take the right path and avoid unnecessary competition.

Fifth, the government, especially ministries and departments, should have an administrative body with practical knowledge in the operation of the retail business.
The development of ancillary industries for the retail sector should also be promoted, such as logistics, IT, communications, printing, and product packaging. This will help Vietnamese enterprises appear in profitable markets and create goodwill.”